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Tips for managing your first business credit card

Avoid making common credit mistakes when starting your first business

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question for the CreditCards.com expert

Dear Opening Credits,
I am opening a sole proprietorship to run in my home. I will be owner/operator with no employees. The plan is to purchase all my business equipment over the next few years while I work my full-time day job. The business costs of getting up and fully running should be around $12,000. I want to find a small business credit card to purchase my items that I can quickly pay back, while keeping these expenses separate than my normal household everyday items. I guess the point of the question is, are there any small business cards available, like only a $5,000 limit, that I can apply for without my business, per se, having any past reportable income. Any suggestions would be great. -- Jen 

Answer for the CreditCards.com expert Dear Jen,
There is nothing like making the switch from being an employee to becoming your own boss. The rewards can be immense if you do it right and don't descend into overwhelming liabilities in the process. To sidestep many common credit trip-ups, here's what I think you should do:

1. Overestimate your startup expenses, then pare them down. Over these many years, I have noticed that a predominant problem among eager entrepreneurs is their failure to be realistic about how much it can take to fund a business. A close second mistake is buying far more in the beginning than they truly need. That combination is a brutal blow to cash flow, which can lead to ruinous debt. So if you haven't met with a small business adviser yet, do so now. That person will run the numbers and help you formulate accurate financial projections. Contact your local Small Business Administration for professional, inexpensive assistance.

2. Know your credit risk. As long as you've already built a good history with your personal credit, you don't need an established business to get a card that you can use for your new company. If you have credit cards, student loans and maybe have a car or home loan, you have a credit rating that a lender will be able to assess. With that information, the lender will be able to determine if you qualify for one of its products designed for small businesses, and if so, at what terms. Pull copies of your consumer credit reports to make sure they don't contain any errors (and if they do, dispute them now) at AnnualCreditReport.com. Also get your FICO scores (myFICO.com) to see where you stand. If your credit is falling short, use this time to make improvements. Pay down debt and get payments on track.

3. Look for the right business credit card. Many credit issuers are willing to give lines of credit in the $5,000 mark. Some will grant less, others considerably more. The card options are vast, so focus on those that meet more than just your desired borrowing power. Check out the business credit card deals, that are available and apply for the credit card that best suits your credit rating and needs. For example, you might be traveling to meet with partners, clients or customers. In that case, you'll want one that offers a superior airline mileage plan or points redeemable for hotels.

4. Never mix business with pleasure. Once you have your new plastic, use it exclusively for your company. It may be tempting to charge household expenditures with it, but once you do, it's hard to stop and bookkeeping will become messy. Also, designate a spot in your wallet or handbag for all business related receipts, and clear them out once a week. It's amazing how quickly those slips of paper can accumulate.

So this should give you a decent start -- success is up to you. From one small business owner to another, I wish you the best of luck!

See related: Small business credit cards help balance capital needs10 ways business credit cards are different, 5 things you should know about business credit scores

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Published: December 7, 2011


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Updated: 12-04-2016


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